Labour License To Sub Contractor Of A Contractor Engaged By An Establishment

Hi all!

Greetings for the upcoming Diwali! I need some inputs on the labor license issue. Actually, our organization has engaged a contractor (A) for a big technical job. This contractor A has further engaged a sub-contractor (B) for the supply of manpower for the said job.

Now, in such a case, to whom should we issue Form V – to our contractor-A or to his sub-contractor-B or to both? As per the CLRA Act, even a sub-contractor engaged in the establishment is considered a contractor.

There is a view that the contractor should obtain a Registration Certificate for the proposed engagement of contract workers, directly or indirectly, and then he should issue Form V to his contractor (i.e., sub-contractor-B).

Please help as this is urgent!

Regards,
Arvind Tiwari IFFCO, Paradeep

Dear Arvind,

According to the CL(R&A) Act, the principal employer is required to issue a certificate in Form V to the contractor. You have also stated that according to the definition of the contractor under this Act, we are to consider a subcontractor as a contractor. Therefore, you are also required to issue this Form V to the subcontractor. If you allow your contractor to engage a subcontractor, then you will need to issue this certificate to the subcontractor as well.

It is further clarified that the contractor is not required to have an RC. The contractor is required to obtain a license from the Licensing Officer, while the PE is to apply for a registration certificate.

Regards,
R.N. Khola

Dear Friend,

Normally, the entity that has taken the contract from the Principal Employer (PE) should be given Form V, but there is no legal restriction on issuing Form V in the name of the Sub-Contractor. From the PE's perspective, it is more convenient to issue Form V in the name of the Contractor rather than the sub-contractor.

As per the CLRA Act, within the same premises, two individual parties cannot register themselves as PE. Hence, with advice and requisition from the contractor to issue Form V to the subcontractor, Form V can be issued to the subcontractor as well. This is the regular process in most industries as of now.

Thank you for your prompt response!

Further to your suggestion, if we give Form V to both the contractor and the subcontractor, then we will be issuing two Form Vs for the same work. Two parties will be obtaining labor licenses for one job and for the same set of workers. Is this OK?

Arvind Tiwari

Dear Arvind,

Both the contractors will apply for their own set of workers. The Act itself includes the subcontractor in the definition of the contractor. Therefore, it means that if there is any subcontractor employing the requisite number of workers for obtaining the license, then he will apply for the license. Any subcontractor will definitely take the work from any of the main contractors, and this means that the nature of work may be the same for two or more than two contractors.

Regards,
R.N. Khola

Dear friends,

The Form V could be issued to two or more contractors for the same work, as basically the labor license is checked for the contract laborers engaged in an establishment. Whether they are subcontractors or sub-subcontractors does not matter. In mega projects, the chain of contractors could be quite long. In such cases, the principal employer would be required to issue multiple Form Vs for the same or similar type of work. It is stated that the Form Vs are to be issued for the same set of workmen. When the contractors are different, it cannot be the same set of workmen as both will have a separate set of workmen. Issuance of the second Form V is preferable to facing prosecution for engaging non-licensed contractors.

Regards,
KK

Dear Arvind,

Just consider, if the contractor or subcontractor subcontracts the work to several other subcontractors, would not the issue of multiple Forms V tend to back door entry of several others as contractors to get a label of contractors without any effort? Further, would you as a Principal Employer like to take responsibility and obligations on behalf of all the contractor and his subcontractors, as specified under the provisions of CL(R&A) Act and the Rules thereunder? So, you need not be so liberal to make yourself liable on behalf of one and all contractors/subcontractors.

Although in the definition of "contractor," a subcontractor is also included there, but, before the issue of Form V to the contractor and/or subcontractor, the question arises whether you, as a Principal Employer, have actually accepted or not the subcontractor to supply labor? Further, if the contractor is not supplying any labor and only the subcontractor is destined to supply the labor, Form V can be issued only to the Subcontractor and not the Contractor.

You may like to read the provisions of Rule 21(2) of THE CONTRACT LABOUR (REGULATION AND ABOLITION) CENTRAL RULES, 1971, which prescribes as follows, which binds the Principal Employer for all the acts of his contractor:

EXTRACT OF RULE 21

21. Application for a license.- (1) Every application by a contractor for the grant of a license shall be made in triplicate, in Form IV, to the licensing officer of the area in which the establishment, in relation to which he is the contractor, is located.

(2) Every application for the grant of a license shall be accompanied by a certificate by the principal employer in Form V to the effect that the applicant has been employed by him as a contractor in relation to. His establishment and that he undertakes to be bound by all the provisions of the Act and the rules made thereunder insofar as the provisions are applicable to him as principal employer in respect of the employment of contract labor by the applicant.

Further, Form V also reads as under and makes the Principal Employer responsible for the acts of his contractor.

FORM V

Certified that I have engaged the applicant (name of the contractor) as a contractor in my establishment. I undertake to be bound by all the provisions of the Contract Labour (Regulation & Abolition) Act, 1970 and the Contract Labour (Regulation & Abolition) Central Rules, 1971, insofar as the provisions are applicable to me in respect of the employment of contract labor by the applicant in my establishment.

As such, you may first need to be sure whether you have accepted the subcontract under the agreement with your contractor. Further, if you have actually accepted the subcontractor, you need to ascertain who (the contractor or the subcontractor) actually supplies the labor. So, you have to issue the Form V only to that person who is actually responsible for the supply of the labor and NOT TO ALL.

P S Dhingra Vigilance & Change Management Consultant New Delhi

Thank you for the informative write-up. I appreciate your help. Could you please confirm if the floriculture production units with pack house facilities come under the Factories Act 1948? Please advise or write to [Login to view].

Dear Reddy,
Your doubt about pack house facility of a floriculture production unit is quite genuine, as floriculture, horticulture and agriculture are of the same nature. No doubt these articles or substances are not manufactured in a factory, but, particularly the act of packing of the substance with a view to its use, sale, transport, delivery or disposal comes within the purview of the Factories Act 1948. You may like to see the definition of manufacturing process under Section 2 (k)(i) of the Act, as follows for your satisfaction:

"Manufacturing process" means any process for-
(i) Making altering, repairing, ornamenting, finishing, PACKING, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or …………………………

The reason can be the requirement of working environment, health and cleanliness, safety measures, sanitation, lighting, ventilation and temporature, age conditions for employment, etc., of the workers, disposal of wastes and effluents, dust and fume, adequacy of working space, laterines and urinals for workers, etc.

So, irrespective of the fact that the pack house facility pertains to the floriculture produciton units, it falls within the purview of the Factories Act and the requirements of the Act are a must to comply.

P S Dhingra
Vigilance & Change Management Consultant

I totally agree with Mr. P.S. Dhingra regarding Form-V to be issued to subcontractor. Actually, issuing Form-V is not the only question. The real question is: has the PE signed any agreement with the subcontractor? If yes, then the subcontractor himself becomes the contractor, so there is no question of being a subcontractor. If no, then has the PE signed any agreement with the contractor in which it is mentioned that the contractor can further give the contract to some subcontractor.

Anyhow, my query to Mr. Dhingra is that we are a contractor providing manpower to some PE. We received the Form-V from the PE, obtained the necessary license, and completed all compliances. Now, the PE has appointed another contractor for the same job without our contractor's knowledge and wants this new contractor to become our subcontractor. Essentially, the PE wants us to act as the PE for that subcontractor. Moreover, the original PE has also instructed the subcontractor to issue us Form-V without any formal agreement. Is this allowed? Is this legal? Are we bound by CLRA compliances for that subcontractor?

Dear Shri Sehgal,
Thanks for supplementing my reply.
About your query, it is clear that the PE wants to favour some one else at your cost, who otherwise would not have qualified for contratorship and not have earned any experience and has been made to enter in to the contractorship through the backdoor entry. It is also clear that the PE desires to make the other person ready to compete you and that too by training him through you only.

I can understand your concern. Although legally the PE cannot force you to accept the nominated person as your sub-contractor unless there is any such clause in your written and signed agreement with the PE. If you have already given a free consent to that effect in the agreement, then you will have to abide by the provisions of the agreement and would be liable to accept the sub-contractor appointed by the PE. The agreement, as per the provisions of Indian Contract Act provides as follows:

AGREEMENT as CONTRACT: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

If, however, in the absence of the requirement of sub-contract in the agreement, the PE tries to enforce his will upon you by coercion or undue influence the agreement/contract becomes void.

According to Section 14 of the Indian Contracts Act 1872, the consent is said to be FREE CONSENT when it is not caused by –
1) coercion, as defined in section 15, or
2) undue influence, as defined in section 16, or
3) fraud, as defined in section 17, or
4) misrepresentation, as defined in section 18, or
5) mistake, subject to the provisions of sections 20, 21 and 22.
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.

So, this is the legal poition. But, since you are dependent upon the PE for your business and on your refusal to agree with the proposal of the PE your business can be affected by your refusal. In that case the PE may try to cancel your contract by hook or crook on several lame excuses. So, you need to handle the situation very tactfully and calmly. You therefore have two options:

(1) you can reject the proposal of the PE if your business is not substantially affected and you can afford to lose business from that PE. In that situation the PE would definitely not like to give you more business in future. Of course the PE cannot apply coercion or undue influence to act against the provisions of the agreement. On any attempt of the PE to harm your interest, as you may be knowing fully well as a contrator, you can refer your case to the arbitration under the provisions of the Arbitration Act, as per the provisions of the Agreement.

(2) If your business is substantially effected by not getting any contract in this particular organisation of the PE, you will surely have to avoid any conflict with the PE. But you can ask for written provision by amendment of the agreement. You will however need to remain vigilant about the sub-contractor's moves and deeds and will have see carefully that the provisions of the CL(R&A) Act and Rules thereunder are complied scrupulously by the sub-contractor, otherwise the PE will be free to cancel your contract for not following the provisions of the agreement, Act and the Rules. on the other hand your sub-contractor would already have been successful to obtain the licence and fully ready to compete with you in any organisation.

So, that depends upon your own discretion which option you would prefer to make.

Regards

P S Dhingra
Vigilance & Change Management Consultant
New Delhi

Thank you very much to all of you, especially Mr. Dhingra, for your valuable views and suggestions. It has sorted out the problem for us right now. We have issued Form V to the subcontractor at the request of the contractor. Additionally, we have taken a bond from the contractor indemnifying us for any liability arising out of the engagement of contract workers by the subcontractor for his work, just to protect the interests of my organization.

However, I still have some doubts and will need some insights from all of you to upgrade my knowledge base. PE has registration, and the subcontractor has a labor license, but the contractor has neither the registration nor the license. The contractor, who requires unskilled/skilled contract workers for the job, is hiring them through another contractor.

My question now is: Can a contractor engage workers directly or indirectly without having a license or registration?

I would appreciate your views on the same.

Thanks & Regards,

Arvind Tiwari
DM (HR)

Dear Arvind,

Indeed, a very wise decision to indemnify your organization!

About your supplementary question, firstly, you should have laid down the condition for the contractor, being a licensed contractor, before hiring him. Of course, had he been willing to directly control the labor force, he could be granted Form V. However, here it seems the contractor desired to get Form V for a license for himself but also had the intention to oblige another person to be introduced as a subcontractor to train him as a would-be contractor for the time to come due to his own personal interests.

However, if your organization has awarded the contract to the fellow, you need not worry about that. Let him hire the contract workers directly or indirectly. The only thing is that the interests of the organization are served, and the organization is indemnified properly. The contractor and subcontractor, both, are liable for fulfilling the conditions of the CL (R&A) Act and Rules. You only have to fulfill the liability of the PE as provided in the Act and the Rules.

P. S. Dhingra

Vigilance & Management Consultant

Dhingra Consultancy Group

New Delhi

Thank you very much to all of you, especially Mr. Dhingra, for valuable views and suggestions. It has sorted out the problem for us right now. We have issued Form V to the subcontractor on the request of the contractor. And we have taken a bond from the contractor indemnifying us for any liability arising out of the engagement of contract workers by the subcontractor for his work just to protect the interest of my organization.

However, I still have some doubts and will need some insights from you all for upgrading my knowledge base. PE has registration and the subcontractor has a labor license, but the contractor has neither the registration nor the license. And it is the contractor who requires the unskilled/skilled contract workers for the said job, and it is the contractor who is hiring them but through another contractor.

My question now is whether a contractor can engage workers directly or indirectly without having a license or registration?

Would appreciate your views on the same.

Thanks & regards,

Arvind Tiwari

DM (HR)

Dear All,

Could you all please suggest the licenses that need to be obtained for this type of agreement where PE has hired a contractor, and the contractor, in turn, hires 4-5 subcontractors for their use? In this case, Form 5 has to be issued in whose name?

Additionally, should the contractor alone be responsible for obtaining the license, or should the subcontractors also apply in their names? Please advise on this and provide guidance on the process of obtaining the license from the labor office if the contractor has previously obtained licenses for themselves and the subcontractors.

Please advise on these matters.

Regards,
Pratik

Dear all,

I need to ask, if the company has an agreement with a contractor only, why would the company need to give Form 5 to a subcontractor?

Dear All,

Is there any legal obligation or necessary checklist for appointing a labor contractor, apart from EPF, ESIC, P.TAX, Service Tax, and Contract Labor registration? Please provide me details of the requirements.

Thanks and regards,
Sanchita